DATA I/O CORPORATION
NOTICE OF 1999
ANNUAL MEETING
and
PROXY STATEMENT
<PAGE>
DATA I/O CORPORATION
March 29, 1999
To Our Shareholders:
You are cordially invited to attend the 1999 Annual Meeting of Data I/O
Corporation, which will be held at the Company's headquarters at 10525 Willows
Road N.E., Redmond, Washington 98052. The meeting will begin at 2:00 p.m.
Pacific Daylight Time on Tuesday, May 11, 1999. Following the meeting there will
be an opportunity to see some of our exciting new products and to tour our
factory.
Many of the Directors and Officers of the Company will be attending and
would be pleased to respond to questions either during or after the meeting. We
will review the business operations of the Company for 1998 and the first
quarter of 1999 and report on our strategic plan for the future. Formal business
will include the election of Directors.
Please read the proxy materials carefully. Your vote is important. The
Company appreciates your considering and acting on the proposals presented. I am
looking forward to seeing you on May 11.
Sincerely,
Frederick R. Hume
President and Chief Executive Officer
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DATA I/O LOCATION MAP
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DATA I/O CORPORATION
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS - May 11, 1999
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To The Shareholders of Data I/O Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Data I/O
Corporation (the "Company") will be held at 2:00 p.m. Pacific Daylight Time, on
Tuesday, May 11, 1999, at the Company's principal offices, 10525 Willows Road
N.E., Redmond, Washington 98052, for the following purposes:
(1) Election of Directors:
To elect six directors, each to serve until the next annual
meeting of shareholders or until their successors are elected
and qualified.
(2) Other Business:
To consider and vote upon such other business as may properly
come before the meeting or any adjournments or postponements
thereof.
The Board of Directors has fixed the close of business on March 2, 1999, as the
Record Date for the determination of shareholders entitled to notice of, and to
vote at, the 1999 Annual Meeting.
By Order of the Board of Directors
Frederick R. Hume
President and Chief Executive Officer
Redmond, Washington
March 29, 1999
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YOUR VOTE IS IMPORTANT
Whether or not you expect to attend the meeting in person, we urge you to
sign, date and return the accompanying proxy card at your earliest convenience.
This will ensure the presence of a quorum at the meeting. Promptly returning a
signed and dated proxy card will save the Company the extra expense of
additional solicitation. An addressed, postage-paid envelope is provided in
order to make certain that your shares will be represented at the Annual
Meeting.
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DATA I/O CORPORATION
10525 Willows Road N.E.
Redmond, Washington 98052
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PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MAY 11, 1999
INFORMATION REGARDING PROXY
This Proxy Statement and the accompanying form of proxy are furnished in
connection with the solicitation of proxies by the Board of Directors of Data
I/O Corporation (the "Company") for use at the Annual Meeting of Shareholders to
be held on Tuesday, May 11, 1999, at 2:00 p.m. Pacific Daylight Time, and at any
adjournment thereof. Shareholders of record at the close of business on March 2,
1999 (the "Record Date") are entitled to notice of and to vote at the meeting.
Management anticipates that this Proxy Statement and a copy of the Company's
1998 Annual Report to Shareholders first will be sent to shareholders on or
about March 29, 1999.
A proxy card is enclosed for your use. You are requested on behalf of the Board
of Directors to sign, date, and return the proxy card in the accompanying
envelope, which is postage-paid if mailed in the United States or Canada.
A proxy in the accompanying form which is properly signed, dated and returned
and not revoked will be voted in accordance with the instructions contained
therein. To vote on the election of directors, check the appropriate box under
Item No. 1 on your proxy card. You may (a) vote for all of the director nominees
as a group, (b) withhold authority to vote for all director nominees as a group,
or (c) vote for all director nominees as a group except those nominees indicated
to the contrary. Proxies which are returned to the Company without instructions
will be voted as recommended by the Board of Directors. Any shareholder
executing a proxy has the power to revoke it at any time prior to the voting
thereof on any matter (without, however, affecting any vote taken prior to such
revocation) by delivering written notice of revocation to the Secretary of the
Company, by executing and delivering to the Company another proxy dated as of a
later date or by voting in person at the meeting.
VOTING SECURITIES AND PRINCIPAL HOLDERS
The only outstanding voting securities of the Company are shares of common stock
(the "Common Stock"). As of the Record Date, there were 7,238,311 shares of
Common Stock issued and outstanding, and each such share is entitled to one vote
at the 1999 Annual Meeting. The presence in person or by proxy of holders of
record of a majority of the outstanding shares of Common Stock is required to
constitute a quorum for the transaction of business at the Annual Meeting.
Shares of Common Stock underlying abstentions will be considered present at the
Annual Meeting for the purpose of calculating a quorum. Under Washington law and
the Company's charter documents, if a quorum is present, the six nominees for
election to the Board of Directors who receive the greatest number of
affirmative votes cast at the Annual Meeting shall be elected Directors.
Abstentions will have no effect on the election of directors. There can be no
broker non-votes on the election of directors since brokers who hold shares for
the accounts of their clients have discretionary authority to vote such shares
with respect to the election of directors. Proxies and ballots will be received
and tabulated by ChaseMellon Shareholder Services, an independent business
entity not affiliated with the Company.
The Common Stock is traded in the over-the-counter NASDAQ National Market System
under the symbol DAIO. The last sale price for the Common Stock, as reported by
NASDAQ on March 2, 1999, was $1.688 per share.
The following table sets forth information with respect to all shareholders
known by the Company to be the beneficial owners of more than five percent of
its outstanding Common Stock as of March 2, 1999. Except as noted below, each
person or entity has sole voting and investment powers with respect to the
shares shown.
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Amount & Nature
of Beneficial Percent of Shares
Name and Address Ownership Outstanding
Glen F. Ceiley 1,202,625(1) 16.6%
Bisco Industries Inc.
704 W. Southern Avenue
Orange, CA 92865
The Killen Group, Inc. 501,939(2) 7.0%
1199 Lancaster Avenue
Berwyn, PA 19312
Dimensional Fund Advisors, Inc. 469,300(3) 6.5%
1299 Ocean Avenue - 11th Floor
Santa Monica, CA 90401
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(1) The holding shown is as of March 18, 1999, as reported by Glen F.
Ceiley, Bisco Industries, Inc. ("Bisco"), and Bisco Industries, Inc.
Profit Sharing and Savings Plan (the "Bisco Plan") on a Schedule 13D
filed pursuant to Rule 13d-1(b) or 13d-2(b) of the Securities Exchange
Act of 1934. Said Schedule 13D indicates that Mr. Ceiley holds sole
voting and dispositive power with respect to 900 shares, Bisco holds
sole voting and dispositive power with respect to 792,400 shares and
the Bisco Plan holds sole voting and dispositive power with respect to
409,325 shares. Mr. Ceiley is the sole stockholder and President of
Bisco and is also the sole trustee of the Bisco Plan.
(2) The holding shown is as of February 17, 1999, as reported by The Killen
Group, Inc., a registered investment advisor, and by Robert E. Killen,
its Chairman, Chief Executive Officer and sole shareholder, on a
Schedule 13G filed pursuant to Rule 13d-1 of the Securities Exchange
Act of 1934. Said Schedule 13G indicates that the Killen Group holds
sole voting power with respect to 271,855 shares and sole dispositive
power with respect to 501,939 shares and that Mr. Killen holds sole
voting and dispositive power with respect to 2,000 shares.
(3) The holding shown is as of February 11, 1999, as reported by
Dimensional Fund Advisors Inc., a registered investment advisor
("Dimensional"), on a Schedule 13G filed pursuant to Rule 13d-1(b) or
13d-2(b) under the Securities Exchange Act of 1934. Said Schedule 13G
indicates that one or more affiliates of Dimensional holds sole voting
and dispositive power with respect to 469,300 shares.
Dimensional disclaims beneficial ownership of all of these shares.
Page 6
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Pursuant to a Standstill Agreement dated February 10, 1999 among Mr. Ceiley,
Bisco, the Bisco Plan (collectively, the "Bisco Parties") and the Company (the
"Standstill Agreement"), the Bisco Parties agreed to vote all shares
beneficially owned by such parties for the slate of director nominees
recommended in this Proxy Statement by the Company's Board of Directors. Among
other things, the Standstill Agreement also: (1) compels the Bisco Parties,
other than in response to a proposal to amend the articles of incorporation or a
proposal that would require approval by a two-thirds vote of shareholders under
Washington law, to vote their shares either (a) in accordance with the
recommendation of a majority of the Board of Directors with respect to any
proposal voted on by shareholders at a shareholders' meeting or (b) in the same
proportion as the percentage of votes cast by the other shareholders of the
Company; (2) provides that the Bisco Parties may not beneficially own in the
aggregate more than 19.99% of the Company's voting securities; (3) precludes the
Bisco Parties from effecting or participating in any tender or exchange offer,
proxy solicitation or otherwise taking action, alone or in concert with others,
to influence the management, Board or policies of the Company, and (4) requires
that the Bisco Parties not vote for the removal from the Board of Directors of
any director. Also, in the Standstill Agreement the Company agreed: (1) to
appoint Mr. Ceiley to its Board of Directors and to propose and support his
reelection to the Board at the 1999 Annual Meeting and (2) to amend the
Company's Shareholder Rights Agreement to increase from 15% to 19.99% the
percentage of the Company's outstanding stock which may be acquired by the Bisco
Parties without triggering the rights under that agreement. Mr. Ceiley also
agreed in the Standstill Agreement that, following the expiration of the term of
the Standstill Agreement, if any of the Bisco Parties (1) nominates any person
(other than Mr. Ceiley) for election to the Board of Directors of the Company at
the 2000 Annual Meeting or submits any proposal to the Company for consideration
at the 2000 Annual Meeting or (2) seeks to call, or participates in calling, a
special meeting of the shareholders of the Company, he will resign from the
Board of Directors effective concurrently with the delivery to the Company of
such nomination or proposal, or the initiation of the process of calling of a
special meeting. The Standstill Agreement expires on February 10, 2000.
Directors' and Officers' Share Ownership
The following table indicates ownership of the Company's Common Stock by each
director of the Company, each executive officer named in the compensation tables
appearing later in this Proxy Statement, and by all directors and executive
officers as a group, all as of March 2, 1999. The Company is not aware of any
family relationships between any director, director nominee or executive officer
of the Company.
Page 7
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Amount & Nature of Percent of Shares
Name Beneficial Ownership Outstanding
Glen F. Ceiley (1) 1,202,625 (2) 16.6%
William C. Erxleben 275,000 (3) 3.8%
Milton F. Zeutschel (4) 118,112 1.6%
David C. Bullis (5) 46,316 (6)
Joel S. Hatlen 47,073 (6)
Mark L. Edelsward 35,162 (6)
Susan S. Webber (7) 29,593 (8) (6)
Edward D. Lazowska 7,541 (6)
Keith L. Barnes 5,777 (6)
Richard A. Mayes (9) 4,803 (10) (6)
Paul A. Gary 1,875 (6)
Frederick R. Hume 0 (6)
James J. David (11) 0 (6)
All current directors and
executive officers
as a group (16 persons) 1,815,577 (12) 25.1%
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(1) Mr. Ceiley was appointed to the Board of Directors on February 10, 1999
pursuant to the terms of a Standstill Agreement. See Page 7 above.
(2) Includes 792,400 shares owned by Bisco, of which Mr. Ceiley is President,
director, and sole shareholder, and 409,325 shares owned by the Bisco Plan,
of which Mr. Ceiley is the sole trustee. Ownership is as of March 18, 1999.
(3) Includes options to purchase 275,000 shares exercisable within 60 days.
Mr. Erxleben resigned from the Company as President and Chief Executive
Officer on January 6, 1998 and as a director on January 14, 1998.
(4) Mr. Zeutschel resigned as Acting President in January 1998 and as Acting
Chief Executive Officer and director in February 1998.
(5) Mr. Bullis resigned as President and Chief Executive Officer on February
22, 1999, but remains on the Board of Directors.
(6) Less than 1 percent each.
(7) Ms. Webber resigned from the Company as Vice President-Quality, Customer
Service, and Human Resources on January 29, 1999.
(8) Includes options to purchase 20,875 shares exercisable within 60 days.
(9) Mr. Mayes resigned from the Company as Vice President-Strategic Marketing
on January 29, 1999. (10) Includes options to purchase 1,875 shares
exercisable within 60 days.
(11) Mr. David was named Acting President of the Company on January 16, 1998
while the Company conducted a search for a Chief Executive Officer.
On May 1, 1998, Mr. Bullis was named President and Chief Executive
Officer of the Company. Mr. David remained with the Company until
August 31, 1998 to assist in the transition.
(12) Includes options to purchase 428,375 shares exercisable within 60 days.
Page 8
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PROPOSAL 1: ELECTION OF DIRECTORS
At the Annual Meeting, six directors will be nominated for election to serve
until the next Annual Meeting or until a successor has been qualified and
elected. The Board of Directors has unanimously approved the six nominees named
below, all of whom are currently members of the Board of Directors. Although the
Board of Directors anticipates that all of the nominees will be available to
serve as directors of the Company, should any one or more of them not accept the
nomination, or otherwise be unwilling or unable to serve, it is intended that
the proxies will be voted for the election of a substitute nominee or nominees
designated by the Board of Directors.
Recommendation: The Board of Directors recommends a vote FOR each of the
Director nominees.
Keith L. Barnes, age 47, was elected to the Board of Directors of the Company in
December 1996. Since 1991 Mr. Barnes has been the President of Integrated
Measurement Systems, Inc. (IMS), a manufacturer of integrated circuit test
equipment. Since 1995 he also has been the Chief Executive Officer of IMS, and
since 1991 has served on its Board of Directors.
David C. Bullis, age 46, was elected to the Board of Directors of the Company on
May 12, 1998. He served as President and Chief Executive Officer of the Company
from May 1998 until his resignation in February 1999, but remains on the Board
of Directors. From 1991 to 1998 Mr. Bullis worked at Synopsys, Inc., where he
was Senior Vice President and General Manager. Prior to Synopsys, he was vice
president and general manager for Logic Modeling and was President, Chief
Executive Officer, and founder of Summation, Inc.
Glen F. Ceiley, age 53, was appointed to the Board of Directors of the Company
in February 1999 and is nominated for reelection, pursuant to the Standstill
Agreement described at page 7 above. Since 1973, Mr. Ceiley has been the
President and Chief Executive Officer of Bisco Industries, a distributor of
fasteners and electronic components, which owns approximately 17 percent (as of
March 18, 1999) of the stock of the Company. Mr. Ceiley is also a director of
Family Steak Houses of Florida, Inc. In May 1998, the Securities and Exchange
Commission issued a cease and desist order against Bisco in connection with
Bisco's purchase of certain shares of Family Steak Houses while its tender offer
for shares of Family Steak Houses was outstanding in violation of Rule 10b-13 of
the Exchange Act. Bisco consented to the entry of the order without admitting or
denying the findings set forth in the order.
Paul A. Gary, age 58, was elected to the Board of Directors of the Company
in March 1998. From 1987 until his retirement in 1996, Mr. Gary worked for
Lucent Microelectronics (formerly AT&T Microelectronics) in various management
positions, the last of which was as Vice President of the Netcom IC Business
unit. From 1981 to 1987 he held management positions with Western Electric
Company, including Director of Engineering and Director of Manufacturing. From
1967 to 1981, Mr. Gary worked for Bell Laboratories. Mr. Gary is also a director
of TriQuint Semiconductors Inc. and Integrated Measurement Systems, Inc.
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Frederick R. Hume, age 56, became President and Chief Executive Officer on
February 23, 1999. He was appointed to the Board of Directors of the Company in
January 1999. From 1988 until his retirement in 1998 Mr. Hume was Vice President
and General Manager of Keithley Instruments in Cleveland, Ohio. From 1972 to
1988 he held various management positions at John Fluke Manufacturing, including
Group Vice President for Manufacturing and Research and Development. Mr. Hume is
also a director of ILX Lightwave.
Edward D. Lazowska, age 48, was appointed to the Board of Directors of the
Company in August 1996. Since 1977 Dr. Lazowska has been a member of the faculty
of the University of Washington's Department of Computer Science and
Engineering. Since 1993 he has held the position of Professor and Department
Chair.
Board and Committee Meetings
The Board of Directors has three standing Committees: the Audit Committee,
the Compensation Committee, and the Nominating Committee. From January to
mid-April 1998 (or, with respect to Ms. Conley and Messrs. Stenquist and
Zeutschel, until their respective resignations as directors), Keith L. Barnes,
Edward D. Lazowska, Frances M. Conley, Donald R. Stenquist and Milton F.
Zeutschel served as members of each of these Committees, with the exception of
Mr. Zeutschel, who did not serve on the Compensation Committee. Messrs.
Stenquist and Zeutschel resigned as directors in February 1998. From mid-April
to December 1998 (or, with respect to Ms. Conley, until her resignation as a
director), Mr. Lazowska served on the Compensation and Nominating Committees;
Ms. Conley served on the Compensation Committee; Mr. Barnes served on the Audit
Committee; and Mr. Gary served on the Audit and Nominating Committees. Ms.
Conley resigned as a director in October 1998.
The Audit Committee considers and recommends to the Board of Directors the
engagement of independent certified public accountants for the ensuing year and
the terms of such engagement; reviews the scope of the audit; periodically
reviews the Company's program of internal control and audit functions; receives
and reviews the reports of the independent accountants; and reviews the annual
financial report to the directors and shareholders of the Company. The Audit
Committee met 4 times during fiscal 1998.
The Compensation Committee makes recommendations to the Board of Directors
concerning the compensation of the Company's executive officers. The committee
administers the Company's management incentive compensation program and its
stock option, stock purchase and stock appreciation rights plans. The
Compensation Committee reviews all employee benefit programs and approves
significant changes in major programs and all new programs. The Compensation
Committee met 9 times during fiscal 1998.
The Nominating Committee seeks qualified candidates to serve on the Company's
Board of Directors, recommends them for the Board's consideration for election
as directors at the Annual Meeting of Shareholders and proposes candidates to
fill vacancies on the Board. The Nominating Committee also recommends nominees
for the various committees of the Board of Directors. The Nominating Committee
will consider written proposals from shareholders for director nominees which
are submitted to the Secretary of the Company in accordance with the procedures
described below under the caption, "Shareholder Nominations and Proposals for
the 2000 Annual Meeting of Shareholders". The Nominating Committee met once
during fiscal 1998.
During the fiscal year ended December 31, 1998, there were 23 meetings of the
Board of Directors. Each of the incumbent directors who were on the Board of
Directors during 1998 attended at least 75% of the aggregate of the total number
of meetings of the Board of Directors and the total number of meetings held by
all committees of the Board of Directors on which he or she served during his or
her term of service on the Board.
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Board Compensation
Employee directors do not receive additional compensation for serving on the
Board of Directors. Non-employee directors received a cash retainer for fiscal
year 1998 of $3,750 for each quarter of service plus $1,000 for each full Board
meeting attended and $500 for each teleconference Board meeting attended. In
addition, each non-employee Board member as of May 1998 was granted an option to
purchase 5,000 shares of common stock at an exercise price of $5.19, which vests
quarterly over two years. The prior practice of paying the annual retainer fee
with shares of common stock was discontinued as of January 1998. The Company
also reimburses non-employee directors for actual travel and out-of-pocket
expenses incurred in connection with service to the Company.
The following table shows compensation paid by the Company to non-employee
directors during fiscal year 1998.
<TABLE>
<CAPTION>
Cash Compensation Option Grants
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Number of Securities
Underlying
Name Retainer ($) Meeting Fees ($) Options/SARs (#)
- ---- ------------ ---------------- ----------------
<S> <C> <C> <C>
Keith L. Barnes $15,000 $16,500 5,000
Frances M. Conley (1) $16,467 $24,000 5,000
Paul A. Gary (2) $12,071 $13,500 5,000
Edward D. Lazowska $15,000 $16,500 5,000
Donald R. Stenquist (3) $2,055 $3,000 0
Milton F. Zeutschel (3) $2,219 $3,000 0
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</TABLE>
(1) Ms. Conley resigned from the Board of Directors in October 1998. She was
paid $24,000 in lieu of meeting fees for serving as Chairman of the Board
from January 1998 up to the date of her resignation as director.
(2) Mr. Gary was elected to the Board of Directors in March 1998.
(3) Messrs. Stenquist and Zeutschel resigned from the Board of Directors in
February 1998.
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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, certain officers and persons who own more than ten percent of the
Company's Common Stock ("Reporting Persons") to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Reporting
Persons are required by SEC regulations to furnish the Company with copies of
all Section 16(a) reports.
To the Company's knowledge, based solely on its review of copies of such reports
furnished to the Company and written representations that no other reports were
required, all Section 16(a) filing requirements applicable to its officers and
directors were complied with during 1998 except for one report filed late by
each of the following directors of the Company reporting the receipt of shares
of Common Stock in January 1998 as payment of a retainer fee for service on the
Board in 1997: Keith L. Barnes, 3,902 shares; Frances M. Conley (former
director), 3,902 shares; Edward D. Lazowska, 3,902 shares; W. Hunter Simpson
(former director), 1,422 shares; Donald R. Stenquist (former director), 3,902
shares; and Milton F. Zeutschel (former director), 3,902 shares.
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EXECUTIVE COMPENSATION
Report of Compensation Committee on Annual Compensation
The Compensation Committee of the Board of Directors ("the Committee") is
composed entirely of independent outside directors. The Committee is responsible
for setting and administering the policies which govern all of the compensation
programs of the Company.
The Committee has established a compensation plan for executive officers with
three components: annual base salary, annual management incentive compensation
and long-term stock options. Each of these components is described below. This
executive officer compensation plan is evaluated annually by the Committee by
reviewing Data I/O's overall financial performance, individual executive officer
performance, and executive officer total compensation compared with other
companies within the electronics industry.
Annual Base Salary Structure. The Committee establishes a base salary structure
for each executive officer position. This structure defines the minimum,
mid-point and maximum salary levels and the relationship of salary to total cash
compensation. The Committee reviews the salary structure periodically based on
surveys of compensation paid to executives performing similar duties with
electronic manufacturing and software companies, located primarily in the United
States, with annual revenues between $40 and $150 million. This group was
selected as it is believed to be representative of the companies with which the
Company competes for key employees.
The Committee's objective is to maintain a salary structure which, when combined
with annual incentive compensation, provides the Company's executive officers
with total cash compensation which is near the market median for executives with
similar responsibilities, experience and ability. In 1998 the executive officer
group as a whole received cash compensation which, according to survey data, was
at or slightly above the aggregate median cash compensation paid to officers in
similar positions at similar-sized electronics companies.
Management Incentive Compensation Plan ("MICP"). The MICP offers each executive
officer a performance- based opportunity to earn additional annual cash
compensation in an amount tied to a percentage of the executive officer's base
salary. The Committee's objective in setting executive MICP percentages and the
formulas for MICP payout is to pay above industry average total compensation for
better than industry average historical financial performance and below industry
average compensation for worse than industry average historical performance. The
percentages of base salary targeted for MICP payout ("the guidelines") for
executives for a given year are established by the Committee early in the year.
The 1998 MICP guidelines for executive officers other than the President ranged
from 30% to 40% of base salary, while the guideline for the President was 40%.
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The actual MICP payout to an executive officer in relation to his or her
guideline for 1998 was a function of four measurements: the Company's revenue
compared to a pre-determined target, completion of certain development projects,
customer satisfaction compared to pre-determined targets and the completion of a
new strategic plan. The Committee believes that these targets and metrics were
measures of key activities for the Company during 1998 which will affect
near-term and long-term shareholder value. MICP payout to executive officers for
1998 was based entirely on a formula which included these four variables.
Guideline MICP is to be paid to executive officers if the Company achieves a
combined result of 100%. A lesser or greater percentage of guideline is to be
paid if a combined result of greater or less than 100% is achieved.
The MICP for 1998 provided that no officer would receive an MICP payout if the
Company did not achieve a certain level of combined accomplishment of the
targets described above. The maximum payout to executive officers under MICP
cannot exceed 200% of guideline. For 1998, the four individual targets were
achieved to varying degrees and resulted in a 65% payout under this plan. See
"Summary Annual Compensation Table."
Stock Option Plan. The Committee approves grants under the 1986 Employee Stock
Option Plan, as amended and restated (the "1986 Plan"). This is the Company's
only long-term incentive plan. The primary purpose of the 1986 Plan is to make a
significant element of executive pay a reward for taking actions which maximize
shareholder value over time. The Committee grants options based primarily on its
perception of the executive's ability to affect future shareholder value and
secondarily on the competitive conditions in the market for exceptionally
talented executives who typically command compensation packages which include a
significant equity incentive. All options granted to the President and Chief
Executive Officer and any other executive officer in 1998 were based on these
criteria.
In the electronics industry, stock options represent the principal compensation
which attracts, retains and motivates exceptional executives. Accordingly, total
outstanding options as a percentage of outstanding shares tends to be higher in
electronics than in other industries. As of the Record Date, the Company's
outstanding options represented approximately 18% of outstanding shares, which
the Company believes is average within the electronics industry.
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Historically, all options granted by the Company have been granted with an
exercise price equal to the fair market value of the Company's Common Stock on
the date of grant and, accordingly, will only have value if the Company's stock
price increases. All options granted during and after August 1998 become
exercisable at a rate of 12.5% per quarter. All options granted prior to August
1998 become exercisable at a rate of 25% per year, except for a 1993 grant to
William C. Erxleben, the former President and Chief Executive Officer, which
provided for vesting at a rate of 33.3% per year, two performance vesting grants
to Mr. Erxleben in 1997 which vested in 1997 upon successful completion of
certain measurable objectives, and a 1998 grant to David C. Bullis, former
President and Chief Executive Officer, which provided for quarterly vesting over
a four-year period. All grants are subject to acceleration of vesting in
connection with certain events leading to a change in control of the Company or
at any other time at the discretion of the Committee. All options granted to
executive officers are issued in tandem with limited stock appreciation rights
("SARs"), which become exercisable only in the event of a change in control of
the Company. See "Change in Control Arrangements."
In May 1998, the Compensation Committee authorized the cancellation and regrant
at lower exercise prices of an option that had been granted to David C. Bullis
at the time of his acceptance of the position of President and Chief Executive
Officer. Following the original grant of this option, the market price of the
Company's Common Stock declined so that the exercise price was higher than the
market price of the underlying shares. The Committee decided to regrant the
option at the then market price of the underlying stock because it believed that
the decline in the market price of the Company's Common Stock since the date the
option was granted frustrated the purpose of the option. The other terms of the
regranted option, such as the vesting schedule and expiration date, are
identical to those of the originally granted option.
In August 1998, the Compensation Committee authorized the cancellation and
regrant at lower exercise prices of most options to purchase the Company's
Common Stock, including the option held by Mr. Bullis described above and all
other executive officers, which had an exercise price at or greater than $3.60
("Underwater Options"). Following the original grant of these options, the
market price of the Company's Common Stock declined so that the exercise prices
of the Underwater Options were higher than the market price of the underlying
shares. The Committee decided to regrant the options at exercise prices equal to
the then market price of the underlying stock because it believed that the
decline in the market price of the Company's Common Stock since the date the
Underwater Options were granted frustrated the purpose of the options. The other
terms of the regranted options, such as the vesting schedule and expiration
date, are identical to those of the Underwater Options which they replaced
except that the otherwise vested portion of the new options were not exercisable
for a period of six months after the new grant date.
Page 15
<PAGE>
For additional information concerning the number of new options granted to the
Chief Executive Officer and other executive officers, see "Ten-Year Option
Repricings."
Performance Evaluation. The base salary of each executive officer is reviewed
annually by the President and Chief Executive Officer. This is done on the basis
of a formal review written by the President and Chief Executive Officer,
evaluating the executive's prior year performance against documented job
responsibilities and specific predetermined annual objectives. In developing
executive compensation packages to recommend to the Committee, the President and
Chief Executive Officer considers, in addition to each executive's prior year
performance, the executive's long-term value to the Company, the executive's pay
relative to that for comparable surveyed jobs, the executive's experience and
ability relative to executives in similar positions, and the current year
increases in executive compensation projected in industry surveys.
The Committee then reviews the President and Chief Executive Officer's
recommendations for executive officers' total compensation and makes final
decisions on pay for each executive officer based on the President and Chief
Executive Officer's summary of the performance evaluations and on the other
criteria and survey data described above. In this process, the Committee
consults extensively with the Company's President and Chief Executive Officer.
The Committee meets annually without the President and Chief Executive Officer
to evaluate his performance and to develop a recommendation for his compensation
for the coming year. In addition to reviewing the Company's financial
performance for the prior year, the Committee reviews compensation surveys for
chief executive officers in similar companies and the President and Chief
Executive Officer's individual performance, including development and execution
of short- and long-term strategic objectives, Company revenue and profitability,
and employee morale, the achievement of which is expected to increase
shareholder value. The Committee then approves base salary and MICP percentage
changes for all executive officers.
At the time he was hired, the Compensation Committee determined the 1998
compensation package, including salary, bonus, stock option grants, and other
benefits for David C. Bullis, former President and Chief Executive Officer,
based on the Committee's perception of his qualifications for the position, his
ability to affect future shareholder value, compensation surveys (as noted above
under "Annual Base Salary Structure"), and the competitive conditions in the
market.
Page 16
<PAGE>
The Company has entered into agreements (the "Severance Agreements") with
certain executive officers whereby such individuals will be entitled to receive
payments if they are terminated without cause or resign with good reason within
specified periods following the occurrence of certain events deemed to involve a
change in control of the Company. See "Change in Control Arrangements." Under
the Omnibus Budget Reconciliation Act of 1993, the federal income tax deduction
for certain types of compensation paid to the chief executive officer and the
four other most highly compensated executive officers of publicly held companies
is limited to $1 million per officer per fiscal year unless such compensation
meets certain requirements. The Committee is aware of this limitation and
believes that no compensation paid by the Company during 1999 will exceed the $1
million limitation, except possibly a portion of the sums payable pursuant to
the Severance Agreements, if paid.
Respectfully submitted,
COMPENSATION COMMITTEE
Edward D. Lazowska
March 29, 1999
Page 17
<PAGE>
SUMMARY COMPENSATION TABLE
The following table shows compensation paid by the Company for services rendered
during fiscal years 1998, 1997 and 1996 to all persons who served as the Chief
Executive Officer (or acted in a similar capacity) in 1998 and the four other
most highly compensated executive officers of the Company at December 31, 1998,
whose salary and bonus exceeded $100,000 in 1998.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------------------------------ -------------
Securities
Name Other Underlying All
and Annual Options/ Other
Principal Salary Bonus Compensation SARs Compensation
Position Year ($) ($) (1) ($) (#) (2) (3) ($) (4)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David C. Bullis 1998 166,672 58,333 (6) 0 214,000 33,935 (7)
President/ 1997 0 0 0 0 0
Chief Executive Officer (5) 1996 0 0 0 0 0
William C. Erxleben 1998 4,101 0 0 0 150
President/ 1997 243,750 106,031 0 170,000 10,225
Chief Executive Officer (8) 1996 225,000 0 0 30,000 8,016
James J. David 1998 77,055 0 0 0 528
President (9) 1997 160,000 55,680 0 54,000 13,589
1996 101,231 0 0 50,000 4,049
Milton F. Zeutschel 1998 0 0 0 0 0
Acting President/ 1997 0 0 0 0 0
Acting Chief Executive 1996 0 0 0 0 0
Officer (10)
Mark L. Edelsward 1998 145,000 37,700 0 53,500 17,644 (11)
Vice President Worldwide 1997 152,896 0 0 34,500 6,909
Sales 1996 176,723 0 0 1,500 714
Joel S. Hatlen 1998 130,000 29,575 0 47,000 7,008
Vice President Finance/ 1997 99,000 17,226 0 5,000 10,518
Chief Financial Officer, 1996 92,000 0 0 1,000 4,658
Secretary/Treasurer
Richard A. Mayes 1998 145,000 33,438 0 38,000 8,654
Vice President Strategic 1997 101,067 21,982 0 20,000 5,713
Marketing (12) 1996 86,083 21,604 (13) 0 6,000 4,196
Susan S. Webber 1998 126,875 39,575 (15) 0 33,250 6,161
Vice President Quality, 1997 104,000 27,144 0 20,000 4,160
Customer Service, and 1996 95,000 0 0 9,250 4,953
Human Resources (14)
- -------------------------------
(1)
</TABLE>
Page 18
<PAGE>
(1) For 1997 and 1998 these represent amounts earned under the MICP. (see
also Footnotes 6 and 15)
(2) All options granted to executive officers are granted in tandem with an
equal number of SARs. SARs are only exercisable upon the occurrence of
certain events leading to a change in the control of the Company. See
"Change in Control Arrangements."
(3) Includes options to purchase Common Stock at $3.48 per share granted in
August 1998 in place of options to purchase the same number of shares at a
higher price. See "Ten-Year Option Repricings" for more details.
(4) These amounts represent the Company's contributions to the Company's 401k
Plan and its payment of term life insurance premiums on behalf of the
executive (see also Footnotes 7 and 11).
(5) Mr. Bullis was hired in May 1998 and resigned from the Company effective
February 22, 1999.
(6) Represents a guaranteed 100% target prorated bonus for 1998.
(7) Includes relocation expenses and payment of related income taxes
aggregating $32,719.
(8) Mr. Erxleben resigned as President and Chief Executive Officer of the
Company on January 6, 1998.
(9) Mr. David was named President of the Company on January 16, 1998. He
remained President until May 1, 1998, when Mr. Bullis was named President
and Chief Executive Officer.
Mr. David remained with the Company until August 31, 1998.
(10) Mr. Zeutschel resigned as Acting President in January 1998 and as Acting
Chief Executive Officer and director in February 1998.
(11) Includes relocation expenses and payment of related income taxes
aggregating $4,027 and commissions earned in 1997 but paid in 1998
aggregating $6,503.
(12) Mr. Mayes resigned as Vice President Strategic Marketing effective
January 29, 1999.
(13) Represents a guaranteed MICP bonus for 1996.
(14) Ms. Webber resigned as Vice President-Quality, Customer Service, and
Human Resources effective January 29, 1999.
(15) Includes special program incentive bonus of $10,000.
Page 19
<PAGE>
On January 6, 1998, Mr. Erxleben resigned as President and Chief Executive
Officer of the Company. The Company and Mr. Erxleben subsequently entered into
an agreement whereby Mr. Erxleben has agreed, among other things, not to compete
with the Company and to provide consulting services to the Company for a period
of 18 months following his resignation. For this agreement, the Company is
paying Mr. Erxleben $250,000 over the 18 month period and extended the terms of
his outstanding options. This extension is detailed in Footnote 8 on page 14.
On January 6, 1998, Milton F. Zeutschel, then a board member, was named Acting
President and Acting Chief Executive Officer of the Company. On January 16,
1998, James J. David was named Acting President of the Company and Mr. Zeutschel
remained Acting Chief Executive Officer. Mr. Zeutschel resigned as Acting Chief
Executive Officer and as a director of the Company on February 23, 1998 for
health reasons. Mr. Zeutschel served as Acting President and Acting Chief
Executive Officer of the Company without compensation beyond that received for
his service as a director.
On May 1, 1998, David C. Bullis was named President and Chief Executive Officer
of the Company. He was also appointed to the Board of Directors on May 12, 1998.
James J. David remained with the company until August 31, 1998 to assist in the
transition. Mr. Bullis resigned as President and Chief Executive Officer
effective February 22, 1999, but remains a director. Frederick R. Hume was named
President and Chief Executive Officer effective February 23, 1999 and was
appointed to the Board of Directors on January 29, 1999.
In August 1998, Mr. Bullis and the Board entered into an agreement whereby Mr.
Bullis would receive certain benefits provided he remained as President and
Chief Executive Officer of the Company for a period of six months or longer from
the date of the agreement. Such benefits included a guaranteed bonus (see
Summary Compensation Table), an option repricing opportunity (see Ten-Year
Option Repricings Table), severance benefits to be paid in the event of a change
in control of the Company, and severance benefits to be paid in connection with
Mr. Bullis's resignation after six months (the "resignation severance"). This
resignation severance would be equal to 50% of the sum of his annual base salary
as of the effective date of the permitted resignation plus the cash bonus to
which he would be entitled under any bonus plan that has been approved by the
Company's Board of Directors regarding the current fiscal year. Upon Mr.
Bullis's resignation in February 1999, he received a severance payment of
$175,000.
Page 20
<PAGE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS TABLE
Option/SAR Grants in the Last Fiscal Year
Number of Percent Potential Realizable Value
Securities of Total at Assumed Annual Rates of
Underlying Options/SARs Exercise Stock Price Appreciation
Options/SARs Granted to or for Option Term (5)
-----------------------------
Granted Employees Base Price Expiration 0% 5% 10%
Name (#) (1) in Fiscal ($/Sh) (2)(3) Date (4) ($) ($) ($)
Year
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
David C. Bullis (6) (7) 214,000 16.36% 3.48 04/03/04 0 253,276 574,597
William C. Erxleben (8) 0 0.00% 0 0 0
James J. David (9) 0 0.00% 0 0 0
Milton F. Zeutschel (10) 0 0.00% 0 0 0
Mark L. Edelsward 16,000 1.22% 3.48 08/01/04 0 18,937 42,961
1,500 (11) 0.11% 3.48 04/27/99 0 1,775 4,028
1,000 (11) 0.08% 3.48 11/26/01 0 1,184 2,685
1,500 (11) 0.11% 3.48 08/24/04 0 1,775 4,028
3,500 (11) 0.27% 3.48 07/22/03 0 4,142 9,398
30,000 (11) 2.29% 3.48 12/09/03 0 35.506 80,551
Joel S. Hatlen 16,000 1.22% 3.48 08/01/04 0 18,937 42,961
25,000 (11) 1.91% 3.48 01/11/04 0 29,588 67,126
1,000 (11) 0.08% 3.48 08/27/02 0 1,184 2,685
Richard A. Mayes (12) 15,000 1.15% 3.48 08/01/04 0 17,753 40,275
15,000 (11) 1.15% 3.48 12/09/03 0 17,753 40,275
3,000 (11) 0.23% 3.48 08/27/02 0 3,551 8,055
2,000 (11) 0.15% 3.48 07/22/03 0 2,367 5,370
3,000 (11) 0.23% 3.48 05/20/02 0 3,551 8,055
Susan S. Webber (13) 17,000 1.30% 3.48 08/01/04 0 20,120 45,646
2,000 (11) 0.15% 3.48 11/26/01 0 2,367 5,370
5,000 (11) 0.38% 3.48 07/22/03 0 5,918 13,425
9,250 (11) 0.71% 3.48 08/27/02 0 10,948 24,837
- ---------------------------
</TABLE>
Page 21
<PAGE>
(1) An equal number of SARs are granted in tandem with options granted to
executive officers. SARs are exercisable only upon the occurrence of
certain events leading to a change in the control of the Company.
See "Change in Control Arrangements."
(2) Under the terms of the Data I/O Corporation 1986 Stock Option Plan, as
amended and restated, the Compensation Committee retains discretion,
subject to plan limits, to modify the terms of and reprice outstanding
options.
(3) The exercise price may be paid by delivery of already owned shares,
subject to certain conditions.
(4) All new options granted in August 1998 are exercisable commencing three
months after grant date, with 12.5% of the shares exercisable at that time
and an additional 12.5% of the shares exercisable on each successive
quarter after the grant date, with full vesting occurring on the second
anniversary of such date. The new options issued to Mr. Hatlen in January
1998 are exercisable commencing one year after the grant date, with 25% of
the shares exercisable at that time and an additional 25% of the shares
exercisable on each successive year after the grant date, with full vesting
occurring on the fourth anniversary of such date. The new options issued
to Mr. Bullis in April 1998 are exercisable commencing three months after
grant date, with 6.25% of the shares exercisable at that time and an
additional 6.25% of the shares exercisable on each successive quarter after
the grant date, with full vesting occurring on the fourth anniversary of
such date. The vesting schedule for options canceled and reissued in 1998
due to repricing follows the schedule set for the original options issued,
except that the otherwise vested portion of the new options was not
exercisable for a period of six months after the new grant date. Options
which have been outstanding for at least six months will become exercisable
in full upon the occurrence of certain events leading to a change in
control of the Company. See "Change in Control Arrangements" below. Options
expire six years from the date of grant, subject to earlier termination if
the optionee's employment is terminated.
(5) Potential realizable value is based on an assumption that the stock
price of the Common Stock appreciates at the annual rate shown (compounded
annually) from the date of grant until the end of the option term.
These numbers are calculated based on SEC requirements and
do not reflect the Company's estimate of future stock price growth.
(6) Mr. Bullis's options originally granted on April 3, 1998 were repriced
on May 14, 1998 to reflect the lower market price at that time of
$4.69. These options were repriced again on August 3, 1998 to reflect
the lower market price at the time of $3.48. See "Ten-Year Option
Repricings."
(7) Mr. Bullis resigned as President and Chief Executive Officer of the
Company on February 22, 1999, but remains a director. All of his
unvested options were forfeited at the time of his resignation. Any
vested options held by him are exercisable through May 22, 1999. At
this time, no options have been issued to Mr. Bullis in his capacity as
a director.
(8) Mr. Erxleben resigned from the Company on January 6, 1998. All vested
options held by him on January 6, 1998 will terminate on the earlier of
(i) the original expiration date, (ii) the effective date of
termination of his consulting engagement with the Company for cause, or
(iii) 90 days after termination of the consulting engagement for any
other reason. All unvested options held by him at January 6, 1998 will
continue to vest until June 30, 1999 or the earlier termination of Mr.
Erxleben's consulting engagement.
(9) Mr. David was named President of the Company on January 16, 1998. He
remained President until May 1, 1998, when Mr. Bullis was named
President and Chief Executive Officer. Mr. David remained with the
Company until August 31, 1998. He was not granted options in 1998.
(10) Mr. Zeutschel resigned as Acting President in January 1998 and as Acting
Chief Executive Officer and director in February 1998.
(11) Represents options to purchase shares of Common Stock at $3.48 per
share granted in August 1998 in place of options granted in 1998 and in
prior years to purchase the same number of shares at higher prices. See
"Ten-Year Option Repricings". The repricing was offered to most option
holders.
(12) Mr. Mayes resigned from the company on January 29, 1999. All
outstanding unvested options were forfeited at the time of his
resignation. Any vested options held by him are exercisable through
April 29, 1999.
(13) Ms. Webber resigned from the Company on January 29, 1999. All
outstanding unvested options were forfeited at the time of her
resignation. Any vested options held by her are exercisable through
April 29, 1999.
Page 22
<PAGE>
<TABLE>
<CAPTION>
OPTIONS/SAR EXERCISES AND YEAR-END VALUE TABLE
Aggregated Options/SAR Exercises in Last Fiscal Year
# of Securities Underlying Value of Unexercised
Shares Options/SARs at In-the-Money Options/SARs
Acquired on Value December 31, 1998 at December 31, 1998
Exercise Realized (#) (2) ($) (3)
----------------------------------------------------------------
Name (#) ($) (1) Exercisable / Unexercisable Exercisable / Unexercisable
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
David C. Bullis (4) 0 0 40,125 / 173,875 0 / 0
William C. Erxleben (5) 0 0 272,500 / 47,500 0 / 0
James J. David (6) 0 0 0 / 0 0 / 0
Milton F. Zeutschel (7) 0 0 0 / 0 0 / 0
Mark L. Edelsward 0 0 8,000 / 51,500 0 / 0
Joel S. Hatlen 0 0 12,000 / 45,000 0 / 0
Richard A. Mayes (8) 0 0 1,875 / 36,125 0 / 0
Susan S. Webber (9) 0 0 20,875 / 31,125 0 / 0
- ----------------------------
</TABLE>
Page 23
<PAGE>
(1) Market value of underlying securities at exercise date, minus the
exercise or base price of in-the-money options/SARs.
(2) Future exercisability is subject to vesting and the optionee remaining
in the employment of the Company. In addition, all options are granted
in tandem with an equal number of SARs. SARs are only exercisable upon
the occurrence of certain events leading to a change in the control of
the Company.
See "Change in Control Arrangements."
(3) This value is calculated assuming the market value of the securities
underlying the option/SAR at fiscal year end less the exercise or base
price multiplied by the number of in-the-money options/SARs held.
All options listed in this table are out-of-the-money.
(4) Mr. Bullis resigned as President and Chief Executive Officer of the
Company on February 22, 1999, but remains a director. All unvested
options were forfeited at the time of his resignation. Any vested
options held by him are excercisable through May 22, 1999. At this
time, no options have been issued to Mr. Bullis in his capacity as a
director.
(5) Mr. Erxleben resigned from the Company on January 6, 1998. All vested
options held by him on January 6, 1998 will terminate on the earlier of
(i) the original expiration date, (ii) the effective date of
termination of his consulting engagement with the Company for cause, or
(iii) 90 days after termination of the consulting engagement for any
other reason. All unvested options held by him at January 6, 1998 will
continue to vest until June 30, 1999 or the earlier termination of Mr.
Erxleben's consulting engagement.
(6) Mr. David was named President of the Company on January 16, 1998. He
remained President until May 1, 1998, when Mr. Bullis was named
President and Chief Executive Officer. Mr. David remained with the
Company until August 31, 1998. Mr. David had no options outstanding on
December 31, 1998.
(7) Mr. Zeutschel resigned as Acting President in January 1998 and as Acting
Chief Executive Officer and director in February 1998.
(8) Mr. Mayes resigned from the company on January 29, 1999. All
outstanding unvested options were forfeited at the time of his
resignation. Any vested options held by him are exercisable through
April 29, 1999.
(9) Ms. Webber resigned from the Company on January 29, 1999. All
outstanding unvested options were forfeited at the time of her
resignation. Any vested options held by her are exercisable through
April 29, 1999.
Page 24
<PAGE>
TEN-YEAR OPTION REPRICINGS
The following table contains information about adjustments to the exercise
prices of outstanding options held by executive officers in the last ten fiscal
years. In 1989, the exercise price of outstanding options was reduced by $4.15
to reflect a $4.15 special dividend that was paid in that year. In 1997, the
exercise price for most options priced at $6.00 or more was reduced to reflect
the market value of the Common Stock on the date of the repricing. In August
1998, the exercise price for options priced higher than $3.60 was reduced to
reflect the market value of the Common Stock on the date of the repricing. Also
in 1998, options granted to Mr. Bullis at the time of his hiring were repriced
in May 1998. All adjustments were done by cancellation of the original options
and the grant of new options.
Page 25
<PAGE>
<TABLE>
<CAPTION>
Number of Market Length of
Securities Price of Exercise New Original Option
Underlying Stock at Price at Exercise Term Remaining
Options Time of Time of Price at Date of
Repricing Repriced Repricing Repricing Repricing
Name Date (#) ($) ($) ($)
- --------------------------- ------------ -------------- ------------ ------------ ----------- ------------------
<S> <C> <C> <C> <C> <C> <C>
David C. Bullis 8/3/98 214,000 3.48 4.69 3.48 5 years 243 days
Former President, CEO 5/14/98 214,000 4.69 5.50 4.69 5 years 324 days
Thomas R. Clark 3/9/89 30,000 5.75 6.13 1.98 4 years 363 days
Former President, CEO 3/9/89 10,958 5.75 9.13 4.98 2 years 220 days
3/9/89 39,042 5.75 9.13 4.98 2 years 220 days
James J. David 4/23/97 50,000 4.56 6.00 4.56 5 years 17 days
Former President
Mark L. Edelsward 8/3/98 1,500 3.48 3.75 3.48 0 years 87 days
Vice President 8/3/98 1,000 3.48 4.56 3.48 3 years 26 days
8/3/98 1,500 3.48 4.56 3.48 4 years 25 days
8/3/98 3,500 3.48 5.00 3.48 4 years 354 days
8/3/98 30,000 3.48 6.75 3.48 5 years 129 days
4/23/97 1,000 4.56 8.50 4.56 4 years 124days
3/9/89 1,000 5.75 6.13 1.98 4 years 363 days
William C. Erxleben 2/20/97 85,000 5.00 8.50 5.00 4 years 190 days
Former President, CEO 2/20/97 10,000 5.00 6.13 5.00 5 years 63 days
Joel S. Hatlen 8/3/98 1,000 3.48 4.56 3.48 4 years 25 days
Vice President, CFO 8/3/98 5,000 3.48 5.00 3.48 4 years 354 days
8/3/98 25,000 3.48 5.59 3.48 5 years 162 days
John J. Hagedorn 3/9/89 15,000 5.75 6.13 1.98 4 years 363 days
Former Sr. Vice 3/9/89 35,000 5.75 8.00 3.85 4 years 185 days
President
Richard C. Karr 3/9/89 25,000 5.75 6.13 1.98 4 years 363 days
Former Vice President 3/9/89 17,100 5.75 8.75 4.60 3 years 281 days
Horst Mader 3/9/89 20,000 5.75 6.13 1.98 4 years 363 days
Former Vice President 3/9/89 15,300 5.75 8.75 4.60 3 years 281 days
Joseph H. Matthews 3/9/89 10,000 5.75 6.13 1.98 4 years 363 days
Former Vice President 3/9/89 36,000 5.75 8.75 4.60 3 years 281 days
Richard A. Mayes 8/3/98 3,000 3.48 4.56 3.48 3 years 201 days
Former Vice President 8/3/98 3,000 3.48 4.56 3.48 4 years 25 days
8/3/98 2,000 3.48 5.00 3.48 4 years 354 days
8/3/98 15,000 3.48 6.75 3.48 5 years 129 days
4/23/97 3,000 4.56 6.88 4.56 4 years 305 days
Lawrence L. Mayhew 3/9/89 115,761 5.75 8.75 4.60 3 years 281 days
Former President, CEO 3/9/89 59,400 5.75 8.75 4.60 3 years 281 days
Maureen L. O'Larey 3/9/89 2,000 5.75 6.13 1.98 4 years 363 days
Former Vice President 3/9/89 6,358 5.75 8.75 4.60 3 years 281 days
Domenico Picone 4/23/97 15,000 4.56 8.50 4.56 4 years 124 days
Former Vice President
James Russell 3/9/89 10,000 5.75 6.13 1.98 4 years 363 days
Former Vice President 3/9/89 2,466 5.75 8.75 4.60 3 years 281 days
Susan S. Webber 8/3/98 2,000 3.48 4.56 3.48 3 years 26 days
Former Vice President 8/3/98 5,000 3.48 5.00 3.48 4 years 354 days
8/3/98 9,250 3.48 4.56 3.48 4 years 25 days
4/23/97 2,000 4.56 8.50 4.56 4 years 124 days
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 26
<PAGE>
Shareholder Return Performance Graph
Shown below is a line-graph comparing cumulative total shareholder return on
Data I/O Common Stock for each of the last five years against the cumulative
total return for the Russell 2000 Index and the S & P High Tech Composite. This
cumulative return includes the reinvestment of cash dividends.
COMPARATIVE FIVE-YEAR TOTAL RETURNS (1)
Data I/O Corporation, Russell 2000, and S & P High Tech
Composite
(Performance results as of year end through December 31, 1998)
[OBJECT OMITTED]
- --------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998
----------------------------------------------------
DAIO $100 $228 $285 $217 $254 $71
Russell 2000 $100 $97 $122 $140 $169 $163
S & P High Tech Composite $100 $115 $165 $233 $292 $504
- --------------------------------------------------------------------------------
[OBJECT OMITTED](1) Assumes $100 invested at the close of trading on December
31, 1993, in Data I/O Common Stock, in the Russell 2000 Index and in
the S & P High Tech Composite. Cumulative total return assumes
reinvestment of dividends.
Page 27
<PAGE>
Change in Control and Severance Arrangements
Options reported in the Option/SAR compensatory tables appearing above have been
granted pursuant to the 1986 Plan. Historically most options granted under the
1986 Plan have been granted subject to a vesting schedule of either 25% per year
or 12.5% per quarter. However, the 1986 Plan provides that options which have
been outstanding for at least six months will become exercisable in full for the
periods indicated: (i) for a period of 45 days beginning on the day on which any
person or group (with certain exceptions) becomes the beneficial owner of 25% or
more of the combined voting power of the Company's outstanding securities,
unless such accumulation is previously approved by a disinterested majority of
the plan's administrators; (ii) beginning on the date that a tender or exchange
offer by any person (with certain exceptions) is first published or sent or
given, and continuing for so long as such offer remains open, unless, upon
consummation thereof, such person would be the beneficial owner of less than 30%
of the shares of Common Stock then outstanding, unless such tender offer is
approved by a disinterested majority of the Board; or (iii) immediately prior to
consummation of (a) any merger, consolidation, reorganization or other
transaction pursuant to which persons who hold the outstanding Common Stock
immediately prior to the transaction have less than 40% of the combined voting
power of the surviving entity; or (b) any sale, lease, exchange or other
transfer not in the ordinary course of all or substantially all of the Company's
assets. With any of the foregoing transactions, the Company will give each
option holder notice 20 days prior to the proposed consummation date and each
option holder will then be entitled to exercise their options in full or part at
any time prior to consummation of such transaction. A holder's exercise of those
options that become vested only as a result of such acceleration will be
contingent upon consummation of such transaction.
In 1983, the Company adopted a Stock Appreciation Rights ("SARs") Plan which
allows the Board to grant to each director, executive officer or holder of 10%
or more of the stock of the Company a SAR with respect to certain options
granted to these parties. A SAR has been granted in tandem with each option
granted to an officer of the Company. SARs granted prior to February 3, 1993 and
which have been held for at least six months are exercisable for a period of 20
days following the occurrence of either of the following events: (i) the first
purchase of shares of the Company's Common Stock pursuant to any tender offer or
exchange for such shares (other than an offer by the Company); or (ii) approval
by the shareholders of the Company of any merger, consolidation, reorganization
or other transaction providing for the conversion or exchange of more than 50%
of the outstanding shares of the Company's Common Stock into securities of a
third party, or cash, or property, or a combination of any of the foregoing.
SARs granted on or after February 3, 1993 and which have been held for at least
six months are exercisable for a period of 20 days following the occurrence of
either of the following events: (i) the close of business on the day that a
tender or exchange offer by any person (with certain exceptions) is first
published or sent or given if, upon consummation thereof, such person would be
the beneficial owner of 30% or more of the shares of Common Stock then
outstanding; or (ii) approval by the shareholders of the Company (or, if later,
approval by the shareholders of a third party) of any merger, consolidation,
reorganization or other transaction providing for the conversion or exchange of
more than 50% of the outstanding shares of the Company's Common Stock into
securities of a third party, or cash, or property, or a combination of any of
the foregoing.
Page 28
<PAGE>
The Company entered into severance agreements (the "Severance Agreements") with
each of the following executive officers on the following dates: Joel S. Hatlen,
Vice President Finance, Chief Financial Officer, Secretary and Treasurer in July
1998; Mark L. Edelsward, Vice President World Wide Sales in July 1998; James M.
Rounds, Vice President Engineering in September 1998; Helmut Adamski, Vice
President Marketing in November 1998; and Frederick R. Hume, President and Chief
Executive Officer in February 1999. The respective agreements with Messrs.
Hatlen and Edelsward provide for a lump sum payment to the Officer upon
termination of the Officer's employment by the Company without cause or by the
Officer for "good reason" (as defined in the Severance Agreements) 90 days prior
and within one year following a change of control of the Company. The amount of
the lump sum payment is equal to a multiple of the Officer's base salary at the
time of termination, plus the average bonus received during the last three full
fiscal years the Officer served in his or her present position (the "base"). The
guideline for the multiple for each of the Officers is one times the base. The
size of the multiple declines on a straight-line basis throughout the specified
period, following a change in control, except that the multiple is never less
than one-half. The amount payable under the Severance Agreements is subject to
reduction if the aggregate present value of all payments received in connection
with a change in control would exceed three times the Officer's "annualized
includible compensation," as defined in Section 280G of the Internal Revenue
Code, for the Officer's most recent five taxable years. The contract with Mr.
Adamski guarantees his salary through November 2000 in exchange for his
agreement to move to the United States. The respective agreements with Messrs.
Rounds and Hume provide for the payment of one year's salary (base salary plus
bonus). The agreement with Mr. Hume is a verbal agreement and the parties intend
to enter into a written agreement in the near future.
In connection with execution of the Severance Agreements, the Company required
each Officer to sign a confidentiality and non-competition agreement, which
includes, among other things, a restriction against competing with the Company
or soliciting employees from the Company for a one year period following
termination if the Officer receives a payment under a Severance Agreement. The
Board of Directors believes that the terms and conditions of the Severance
Agreements are in the best interest of the Company because the Severance
Agreements will enable the Officers to continue to focus on activities providing
for the maximum long-term value to the Company's shareholders, even when faced
with the possible change of control of the Company.
Page 29
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon recommendation of the Company's Audit Committee,
engaged Ernst & Young LLP as the Company's principal accounting firm for the
audit of the Company's 1998 consolidated financial statements. A representative
of Ernst & Young LLP is expected to be in attendance at the Annual Meeting and
will be afforded the opportunity to make a statement and respond to appropriate
questions.
OTHER BUSINESS
As of the date of this Proxy Statement, the Company is not aware of any other
business to be acted upon at the Annual Meeting. If any other business calling
for a vote of the stockholders is properly presented at the meeting, the holders
of the proxies will vote or refrain from voting in accordance with their best
judgment.
SHAREHOLDER NOMINATIONS AND PROPOSALS FOR THE
2000 ANNUAL MEETING OF SHAREHOLDERS
The Company's Bylaws provide that advance notice of nominations for the election
of directors at a meeting of shareholders must be delivered to or mailed and
received by the Company 90 days prior to the date one year from the date of the
immediately preceding Annual Meeting of Shareholders or, in the case of a
special meeting of shareholders to elect directors, the close of business on the
10th day following the date on which notice of such meeting is first given to
shareholders. The Bylaws also provide that advance notice of proposals to be
brought before an Annual Meeting by a shareholder must be submitted in writing
and delivered to or mailed and received by the Company not later than 90 days
prior to the date one year from the date of the immediately preceding Annual
Meeting of Shareholders.
Each notice of a nomination or proposal of business must contain, among other
things: (i) the name and address of the shareholder who intends to make the
nomination or proposal; (ii) a representation that the shareholder is a holder
of record of stock of the Company entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice or to vote at the meeting for the proposal; (iii) a
description of all arrangements or understandings between the shareholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
shareholder and any material interest of such shareholder in any proposal to be
submitted to the meeting; (iv) such other information regarding each nominee or
proposal as would be required to be included in a proxy statement filed pursuant
to the proxy rules of the Securities and Exchange Commission; and (v) with
respect to the nominations, the consent of each nominee to serve as a director
of the Company if elected.
Page 30
<PAGE>
A copy of the full text of the provisions of the Company's Bylaws dealing with
shareholder nominations and proposals is available to shareholders from the
Secretary of the Company upon written request.
In order to be included in the Company's proxy statement and form of proxy
relating to its 2000 Annual Meeting of Shareholders, shareholder proposals or
nominations to be presented at the 2000 Annual Meeting of Shareholders must be
received by the Company at its executive offices by November 29, 1999.
SOLICITATION OF PROXIES
The proxy accompanying this Proxy Statement is solicited by the Board of
Directors of the Company. Proxies may be solicited by officers, directors and
regular supervisory and executive employees of the Company, none of whom will
receive any additional compensation for their services. In addition, the Company
has engaged MacKenzie Partners, Inc., a proxy solicitation firm, to advise the
Board of Directors on shareholder relations and, possibly to render proxy
solicitation services. MacKenzie has been paid a retainer fee of $10,000 and
will be paid additional fees if solicitation services are provided.
Solicitations of proxies may be made personally, or by mail, telephone,
telegraph or messenger. The Company will pay persons holding shares of Common
Stock in their names or in the names of nominees, but not owning such shares
beneficially, such as brokerage houses, banks and other fiduciaries, for the
expense of forwarding soliciting materials to their principals. All costs of
solicitation of proxies will be paid by the Company.
By order of the Board of Directors
Frederick R. Hume
President and Chief Executive Officer
Redmond, Washington
March 29, 1999
Page 31
<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to Rule 14a-11(c) or Rule 14a-12
DATA I/O CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Same As Above
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee.
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(j)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): 4) Proposed
maximum aggregate value of transaction: 5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
Page 32
<PAGE>
<TABLE>
<CAPTION>
Proxy
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Data I/O CORPORATION
The undersigned hereby appoints Frederick R. Hume, and Joel S. Hatlen, and each of them as proxies,
each with full power of substitution, to represent and vote for and on behalf of the undersigned, as
designated below, the number of shares of common stock of Data I/O Corporation that the undersigned
would be entitled to vote if personally present at the annual meeting of shareholders to be held on May 11,
1999, or at any adjournment thereof. The undersigned directs that this proxy be voted as indicated on
the reverse side hereof:
- ------------------------------------------------------------------------------------------------------------
COMMENTS/ADDRESS CHANGE: Please mark comments/address change box on reverse side.
- ------------------------------------------------------------------------------------------------------------
(Continued, and to be marked, dated and
signed on reverse side)
- ------------------------------------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
<S> <C>
Please mark
your votes as
indicated in
this example [x]
This proxy, when properly executed, will be voted in the manner directed on this proxy card. The Board
of Directors recommends a vote FOR all nominees. If no specification is made, all shares represented by
this proxy will be voted FOR all of said nominees and will be voted in accordance with the discretion of
the proxies on all other matters which may come before the meeting or any adjournment thereof.
1. Election of Directors
(INSTRUCTION: To withhold authority to vote for any individual nominee, strike a line through the
nominee's name in the list below.)
Keith L. Barnes
David C. Bullis
Glen F. Ceiley
Paul A. Gary
Frederick R. Hume
Edward D. Lozowska
FOR all nominees listed at left (except as marked to the contrary at left). [__]
WITHHOLD ALL AUTHORITY to vote for all nominees listed at left. [__]
2. In their discretion, the holders of this proxy are authorized to vote upon
such other business as may properly come before the meeting or any
adjournment thereof.
COMMENTS/ADDRESS CHANGE
Please mark this box if you have written
Comments/address change on the reverse side. [__]
The undersigned hereby revokes any proxy or proxies heretofore given for such
shares and ratifies all that said proxies or their substitutes may lawfully do
by virtue thereof.
Signature(s)_________________________________________________ Date_____________________
NOTE: Please sign exactly as name appears on this proxy. If block is held jointly, both persons should
sign. Persons signing in a representative capacity should give their title.
FOLD AND DETACH HERE
</TABLE>
